By Kathy Barks Hoffman
Associated Press
LANSING (AP) — State workers hired after Jan. 1 no longer will be eligible to receive state health care coverage when they retire and long-term employees covered by the state’s defined benefit pension will have to contribute 4 percent of their pay to keep that benefit under bills signed last Thursday by Gov. Rick Snyder.
The changes are expected to save the state $5.6 billion in future decades by cutting its long-term unfunded liability for retiree health care and pension costs by a third, from $14.5 billion to $8.9 billion.
The bills also refund a 3 percent contribution state workers have been paying for nearly a year toward retiree health care costs.
Lower courts already had ruled the fee unconstitutional and the Michigan Supreme Court last week let stand the lower court ruling. A similar 3 percent contribution being paid by teachers toward their retiree health care costs is not affected by the new laws.
The refunds will go to state employees on Jan. 19. Workers can choose to receive the money in their paychecks or as a deposit into their 401(k)or 457 retirement accounts.
A worker making $50,000 a year should get about $1,500 back, state budget director John Nixon estimated.
Snyder and Republican lawmakers praised the bills as a necessary step to protect benefits for current workers while capping costs the state no longer can afford.
“Right now we have a house of cards,” Nixon told reporters after the bill signing. He said 22 percent of the state’s current payroll goes to cover health care for retirees because Michigan is on a pay-as-you-go basis for retiree health care, unlike the pension system, which has millions of dollars set aside to cover future obligations.
The new 4 percent pension fee applies only to workers hired before April 1, 1997, who want to keep their defined benefit pensions that guarantee an annual payment upon retirement.
They can avoid paying the fee if they agree to have their pension frozen at current levels and switch to the defined contribution retirement plan that covers state workers hired after that date. The state already matches employee contributions toward the 401(k)or 457 accounts they hold.
Under the new law, anyone hired in 2012 or later will get an extra 2 percent to match money they place in their 401(k) or 457 accounts to help them save for future health care costs they’ll incur in retirement. They won’t get state health care coverage in retirement unless they buy it, Nixon said.
Nearly 50,000 current state workers will continue to get state health care coverage when they retire, although those on the defined contribution retirement system can give up that benefit and instead get the extra 2 percent match new hires will receive.
Rep. Rashida Tlaib, D-Detroit, last month called the changes “radical” and said retiree health care for some state employees would be left to the whims of the stock market under the Republican-backed plan.
State workers did make some gains last Thursday when the state Civil Service Commission approved three-year contracts with five employee unions beginning with the fiscal year that starts Oct. 1, 2012.
State workers covered by the contracts will get a 1 percent raise that month.
They’ll receive lump sum payments in fiscal 2012 and 2013 that equal 1 percent raises but won’t be added to workers’ base wages.
They’ll also start paying 20 percent of their health insurance premiums next October, double what most now currently pay.
The Civil Service Commission approved a 3 percent raise and 2 percent lump sum payment next October for nonunionized workers who didn’t get a 3 percent pay raise unionized workers got earlier.
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